'Inducement factor' extends notice period despite short employment tenure, says court
Ontario's Superior Court of Justice recently dealt with a case involving a senior executive who claimed she was wrongfully dismissed after being induced to leave her long-term, secure employment. The worker argued her termination provisions were unenforceable because they violated minimum employment standards.
The worker sought significant damages based on her brief employment, arguing that her years of industry experience and the circumstances of her recruitment should be considered when determining appropriate notice. She also claimed entitlement to her full compensation package, including bonuses and equity.
The employer countered that the worker had received proper notice according to her employment contract and that the termination provisions were valid. They denied that any inducement occurred and maintained that as a short-term employee, she had received all entitlements due to her.
The worker had been employed by WellSky, a technology company, for nearly 12 years before being recruited by the employer, AlayaCare Inc., a software-as-a-service company for the homecare industry in Ontario.
At the time of her resignation, the worker was 61 years old, earning $175,515 plus bonuses (anticipated to be $50,000), incentive payments, and stock options.
At WellSky, she was the most senior employee in Canada, managed client relationships in Canada and the United States, was responsible for the account management teams and was the Director of WellSky's Canadian subsidiary. She was considered a valuable employee and represented the company at industry conferences.
The recruitment process began when the employer's co-founder messaged the worker through LinkedIn with the title "Bold moves?" In a later LinkedIn message, he wrote:
"Hey, another great catch up. We'd like to know what your job would be and the compensation in terms of salary and forgone equity. Number of rsus, options vested and untested (sic) you have now will give us a good sense of what it would take us to lure you over."
The worker expressed concern that her former employer might sue her if she left. The employer agreed in writing to pay for legal defence against any potential action, which later occurred when WellSky commenced litigation seeking an injunction against her.
AlayaCare offered a compensation package that included an increased salary of $200,000, bonuses up to $40,000, and equity in the form of Restricted Share Units (RSUs) set to vest over three years. By accepting this offer, the worker would forfeit approximately $407,465 in unvested equity from WellSky.
The offer letter stated: "In the unlikely event that you are terminated without cause, you will receive a minimum of 4 months of base salary." The employment agreement contained a more detailed termination clause that specified AlayaCare could terminate employment "at its sole discretion for any reason or for no reason, without cause" by providing four months of base salary.
The worker started at AlayaCare on January 17, 2022. Shortly after beginning, she noticed her duties differed from what was outlined in her employment agreement. After only seven months, on August 15, 2022, she was terminated without cause due to "a reduction in its workforce" and received four months' salary ($66,666) as severance.
The court examined whether the termination clauses were enforceable under the Employment Standards Act (ESA). It found that the employment agreement permitted termination "for cause" without notice for "any cause recognized at law" or "serious reason," which falls short of the "wilful misconduct" standard required by the ESA.
The court relied on established precedent from several cases, including Waksdale v. Swegon North America Inc. and Rahman v. Cannon Design Architecture Inc., noting: "This court has repeatedly held that if a termination provision in an employment contract violates the ESA – such as a 'no notice if just cause' provision – all the termination provisions in the contract are invalid."
Additionally, the offer letter only provided for "base salary" upon termination, excluding benefits and bonuses, which also violates the ESA. The court referenced the decision in Wood v. Fred Deeley Imports Ltd., where it was established that: "Wood's compensation included Deeley's contributions to her two benefit plans. Under ss. 60 and 61 of the ESA, Deeley was required to continue to make those contributions during the notice period. Its obligation to do so was an employment standard under the ESA. Yet the termination clause's wording excludes and therefore contracts out of that obligation."
Having found both documents unenforceable, the court determined the worker was entitled to reasonable notice at common law under the principles outlined in Bardal v. The Globe & Mail Ltd. The court considered several factors, including the worker's age (62), senior executive position, and the inducement to leave her previous employer.
The court found clear evidence of inducement, stating: "In my view, these discussions initiated by the [employer] go beyond the normal 'courtship' between an employer and prospective employee and amount to an inducement."
The court listed five specific circumstances supporting this finding, including that AlayaCare reached out first, made representations about using the worker's experience to grow the company, and offered to indemnify her against potential litigation.
Based on all factors, particularly the inducement, the court determined a reasonable period of notice was 14 months despite the worker's short tenure. The court stated: "It is clear that [the worker] was induced to leave her employment at WellSky to seek increased compensation with AlayaCare. She was an individual with significant work experience in a niche industry who anticipated long-term employment with the [employer]."
The court addressed each component of compensation, applying established principles for bonuses: "Where a bonus is a non-discretionary and integral part of the employee's compensation package, damages for wrongful dismissal should include both the bonus actually earned before being terminated and the bonus that would have been earned during the notice period, unless the terms of the bonus plan alter or remove that right..."
The worker eventually secured new employment but at a lower compensation package than she had with AlayaCare. After accounting for mitigation and the severance already paid, the court awarded the worker a total of $204,404 in damages, consisting of lost salary ($79,166), benefits ($1,330), bonuses ($33,750), and RSUs ($90,157).
